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| The 3 Sections of the CARES Act addressed here: |
1102 Paycheck Protection Program- 1106 Loan forgiveness
- 1110 EIDC grants
Paycheck Protection Program
This loan is applied for through an approved SBA financial institution. Get in touch with SBA Approved banks right now. This is backed 100% by the SBA. The covered Period is Feb 15, 2020 – June 30, 2020, i.e., the business had to be in operation on February 15. The application for this loan is not available at this time but keep watching the website for more info.
Who is this for:
- Small businesses of 500 or fewer employees
- Nonprofits
- Veterans organizations
- Tribal business concerns
- Sole proprietors
- Independent contractors
- Eligible self-employed individuals (1099 misc employees)
- Employees who are full time, part time, or other basis.
Loan max:
(Lesser of): 10,000,000 or 2.5x average monthly payments for payroll costs for the 1 year before the date the loan is made PLUS any EIDL made Jan 31, 2020 or after that is refinanced under PPP. You can add the EIDL loan to PPP loan later…the Payroll portion is forgiven and the EIDL grant will be taken off the bottom of the loan.
Payroll costs comprise:
- Salaries, wages, commission
- Payment of cash tips
- Vacation/sick time
- Severance/dismissal pay
- Group health insurance premiums
- Retirement plan benefits
- State and local payroll taxes
Allowable use of loan proceeds.
(None of this is meant to replace profit. It’s meant to keep people employed.)
- Payroll costs
- Group health insurance premiums
- Employee salaries, commissions, similar costs
- Mortgage interest not principal rent
- Utilities
- Other interest (equipment, etc.)
Eligibility for PPP:
- In business February 15, 2020 AND
- Had employees with payroll and taxes OR
- Had independent contractors reported on 1099-MISC
Other info:
- Loan is a non-recourse SO LONG AS the proceeds are used for allowable uses.
- No personal guarantee required.
- No collateral required.
- No fees may be charged by the financial institution.
- Credit elsewhere provision does NOT apply.
- Loan payments are deferred
- No prepayment penalty.
- For the loan forgiveness portion, you must have your employees for the 8 weeks post origination. If you have laid off your employees, you can hire them back or hire new employees.
- Expires June 30, 2020. 349 billion allocated to this.
Again, if you use the funds from PPP for their intended purposes, you will have the payroll portion of the loan forgiven…you do not have to pay it back nor be taxed on it.
Loan Forgiveness
This only applies to section 7a loans (1102 Payroll Protection Program or PPP). If you use the funds for what was mentioned above, you do not have to pay it back. It covers 7a loans made prior to February 15, 2020 and after Feb 14, 2020. Used in conjunction with PPP.
Forgiveness of loan principal is given for:
- Payroll costs (as defined in sec 1102)
- Payments of interest on any covered mortgage obligation that was incurred prior to 2/16/2020.
- Rent – as long as the lease was executed prior to 2-15-2020.
- Utilities, – electricity, gas, water, transportation, telephone, and internet access.
- Forgiveness of loan principal is NOT TAXABLE. If you get 250,000 and use it all for covered costs, you don’t have to pay income tax on the forgiven amount.
CAUTION: forgiveness is reduced or even eliminated for borrowers who reduce their workforce during the covered period (8 weeks from the date of the loan origination).
Economic Injury Disaster Loan and Grants
Loan is applied for DIRECTLY through the SBA. https://covid19relief.sba.gov/#/
This is an up to 10,000 advance( aka grant) and is given only IF an application is submitted under section for the 7b2 loan. This is for if your business in in an economic emergency caused by Covid 19. Covered period is 2-15-2020 to 12-31-2020 (as opposed to June 20, 2020 for PPP). Also eligible: sole proprietors (with or without employees), independent contractors, cooperatives, etc.
- No personal guarantee required
- For businesses with not more than 500 employees.
- Up to $200,000 loan
- Business had to be operating on 1-31-2020
- No credit elsewhere requirement
- Loan may be approved by credit score alone
- Can ONLY be given as part of the 7b2 loan application process
- Grant should be deposited into applicants bank account within 3 days of the SBA receiving their application. This is for emergency purposes
Covered Expenses:
- Employee sick leave due to Covid 19
- Payroll – also see the PPP Loan above, which is better to use for Payroll purposes
- Increased materials costs as a result of Covid19
- Rent/mortgage
- Repaying obligations
The 10,000 grant does not need to be repaid even if the applicant is denied the loan. If the EIDL is transferred or refinanced into the PPP, the $10,000 is reduced from loan forgiveness amount.
- If applying for the PPP, contact your bank NOW and ask if they are an SBA Approved bank – let them know you will be applying for this. If you don’t have an SBA Approved Bank, go here to find one. Whatever bank you choose, use the same EIN you used for the application process
- Apply for the EIDL Loan and request the advance. If you get it and don’t refinance it, none of the proceeds of the loan are eligible for forgiveness.
- Once approved, refinance this under PPP (contact the SBA approved bank NOW)
Be sure and apply for these loans/grants asap. Time is of the essence. After applying, make sure your records are in order so that you can keep track of expenses and generate reports for the government.
If you need any help filling out the application, figuring your average monthly payroll costs, or getting your records in order, please give me a call at 281-367-0372 or email me at info@jax-books.com. Any help you receive will be paid for by the lender, and not by you. So that’s a bonus!
Good luck and stay well!